Doomsday

…. is probably how Triple Jump described the day the KRO-Reporter documentary came out. In fact the day I received the attached document (Triple Jump/Incofin letter to LAPO March 2010) was Doomsday. They now face questions in the Dutch parliament. They stand ridiculed in a documentary. The leaders of their beloved sector are abandoning them. Having worked a decade in this sector, only two people I know take Triple Jump seriously, and both work at Triple Jump. Calls for the formal regulation of the microfinance investment sector grow by the day, and Triple Jump find themselves as the central protagonist in the case. And now I hear them groaning, “Not another leaked document”. Yup, another leaked document, and they have no idea from where.

The document has been authenticated by Incofin (Ellen Wouters, Chief Legal Officer: “This morning, I checked internally with my colleagues, and this is indeed a letter that we sent to LAPO”). If it’s false, sue her. It was leaked to me by one of various insiders who have increasingly felt emboldened to speak out. Many are angry at the state of the sector, and if my book has served any purpose at all, it is that people now feel they can express their concerns about what is really happening in microfinance.

Two pages. Five bullet points. One catastrophe.

On March 5th 2010 Incofin and Triple Jump wrote to LAPO. They both knew they were in deep trouble regarding this investment. Let’s save Incofin for another day for the moment. What do they confess, inadvertently, in this document?

The document was written in response to the rating report prepared by Planet Rating. This had been requested in response to the mounting accusations against LAPO by Asad Mahmood of Deutsche Bank, and revealed all manner of problems. LAPO’s investors were desperately hoping that Planet Rating would dispel the myths about LAPO’s appalling behaviour. In fact they added salt to the wound. Interest rates of 144%, savings frauds, illegal operations, nepotism, the report reads like a microfinance crime scene.

First, years after their initial investment, Triple Jump pleads with LAPO to get someone other than their brother to do an audit of the company. Yes, these funds had all invested however many millions of dollars on the basis of the audit done by the brother of one of the board directors. In Nigeria. LAPO had apparently promised to get a sensible company to audit them, but had reneged on the promise. Dutch taxpayer money, the funds of Deutsche Bank’s wealthy clients, all those Kivans who had so generously pumped in $5m in $25 chunks to eradicate poverty, the ASN Bank savers and pensioners, and still no meaningful audit. It’s a joke.

Second, the interest rate charged. LAPO promised it would go down. But instead increased it. And not by a few basis points as we are accustomed to in Europe, but to a whopping 144%. Ooops. And ASN denied this a few weeks ago in the KRO-Reporter documentary. It’s the ASN Bank funds that Triple Jump is writing about, ASN Bank partially own Triple Jump, for Pete’s sake – at least get your stories straight!

Third, LAPO should stop being illegal. Well, that’s a small step in the right direction, but one wonders what the endless investors and donors in ASN Bank, Oxfam Novib, Deutsche Bank, Standard Chartered, Grameen Foundation USA, BlueOrchard, responsAbility, Incofin, Kiva, Calvert Foundation etc. would think of their beloved funds having invested in an illegal operation in the first place. We bang on about client protection principles (LAPO does those too, apparently), but surely a good starting point would be that the institution is at least legal? A minor detail that had evaded their rigorous due diligence processes.

I’m going to skip to the fifth bullet point, because I want to save the fourth for last.

Fifth, LAPO was caught sneaking in yet another fee to the poor. The “risk premium”, which had evaded the audit (done by the brother). Yes, as if these interest rates weren’t high enough already, even Triple Jump were alarmed by this new fee for the poor.

But the fourth point is the classic. [Drum roll] LAPO isn’t even investing this money in microfinance. As astonishing as it may sound, Triple Jump was “concerned” that LAPO had been channelling money to “affiliated LAPO organizations”. They amounted to 23% of the equity of the entire organization, and were “not in line with the core business of LAPO”.

So, all those investors in these various funds; those loyal Dutch taxpayers; the ever-generous Dutch government; those hordes of Kivans desperate to save the world from poverty, had all been pumping money to an organisation that wasn’t even doing microfinance! Where was the money going? Who knows? Triple Jump don’t hint at this, and let’s face it, it’s pretty clear they don’t know their **** from their elbow. They were shooting in the dark from the outset on this deal, duped by a rather clever Nigerian family, and ended up looking so ridiculous that it remains a mystery to me that the Dutch police haven’t arrested them yet. Then we have their board chairman, the charismatic Ab Engelsman (also of ASN Bank and Oikocredit, alas), telling KRO-Reporter (only a few weeks ago) that LAPO never deceived them, and if he had his time again, he’d still invest in LAPO. The guy is head of the Netherland Microfinance Platform, and this letter was written by Triple Jump! We have Calvert Foundation stating repeatedly that they “stand by their investment in LAPO”. Grameen Foundation reckons that rates of 144% are perfectly reasonable because some money lender is apparently a little more pricey. Kiva don’t care in the slightest what interest rates are charged to the poor (24%, 126%, it’s all the same to them, the Kivans will never notice). Deutsche , BlueOrchard, Citi and responsAbility are salivating at the sight of such massive operating margins, albeit originating from the hard work of exploited, vulnerable poor folk. Oxfam Novib have no idea what day of the week it is, and openly contradict the tripe spewed by their partner ASN Bank. Incofin are speechless that they managed to make such a catastrophic mistake. Schwaab Foundation handed these jesters (LAPO, not Triple Jump) an award shortly after they suffered the first ever rating withdrawal in microfinance history and landed on the front page of the NYT. And the CEO of LAPO just pocketed 12% of the equity of the company having enslaved the best part of a million people in debt.

These people should go to prison. Mis-use of public funding, deception, fraud, corruption, take your pick.

The problem is endemic. The microfinance investment funds are largely fraudulent. They tarnish the reputation of the few good players remaining. Microfinance may or may not be a flawed concept, but the practice of microfinance facilitated by these funds is totally flawed.

So, if you’re a Dutch tax-payer – refuse to pay your taxes until Triple Jump is closed down and your microfinance sector is regulated by thinking, ethical adults. Holland has a golden opportunity to lead the way here, don’t blow it. If you’re a Kivan, go back to school. If you’re an ASN investor, put your money under the mattress instead. If you accidentally invested in Citi, Deutsche, BlueOrchard, responsAbility, Incofin or Standard Chartered, ask for it back toute suite. If you donated to Oxfam Novib or Grameen Foundation, sue them. And if you’re the Dutch regulator, get out of bed.

3 Responses to Doomsday

We are alumni of LAPO, who have worked with LAPO for number of years and are in various fields of endeavor. What binds us together is the quality of training and experience we received during our years at LAPO.
Our concerns
• Over the past few years, we have watched with utter bewilderment the smear campaign by Hugh Sinclair to rubbish an organization, which a lot of dedicated young Nigerians labored very hard to build for over two (2) decades.
• We are however peeved with choice of words and temperament in his comments and reference to LAPO. We strongly feel that even in the act of whistle blowing there should be some level of decency and legal boundaries

Our aim
• While we appreciate the dignified silence of LAPO Management in the face of this persistent unwarranted attacks over the last three years, we strongly feel that half-truth and falsehood when repeatedly peddled unchallenged would take the form of truth particularly for those who do not have the benefit of knowing
i) the other side of the story and
ii) the real motive of the peddler.
• The other danger is that the peddler becomes bolder and will devise more channels to make the half- truth and downright falsehoods seem factual. We have seen this trend emerging in Sinclair’s campaign which began with his wife’s verbal assult on the Founder of LAPO in 2009; his writings under various pseudo such as Street cred; various calls, threats of being ‘taken to the media’ and slanderous comments on LAPO to the organization’s partners; his ‘famous’ book and now a web platform.
We are declaring emphatically that this half-truths, falsehood and reckless comments on LAPO MUST be confronted now.
Who we are to address
We are not addressing those who know LAPO so well and have discovered the falsehood and real motive of Hugh Sinclair. We are rather trying to enlighten persons and institutions who have little or no knowledge about LAPO beyond the tales by Hugh Sinclair
What are the issues?
We will address the issues Hugh Sinclair has raised since 2009 which have been rehashed in this blog. The only difference is that at every presentation, they are ‘enhanced’ with outlandish claims and half-truths to make them believable to the unsuspecting!
Illegal operations
Those informed on the local non-profit microfinance context have made their comments on this accusation, through channels we know Hugh Sinclair had access to. Repeating it here is part of the mystery about Hugh Sinclair and his campaign against LAPO. We summarize the non-profit microfinance context in Nigeria thus:
• Non-profit microfinance institutions operate savings and loan schemes which are indigenous to West Africa. A major feature of these institutions is that members who are borrowers make contributions to a ‘loan fund’ from which ONLY them (the member-savers) can borrow. It was these pools or ‘loan funds’ early donors provided grants to support. To our knowledge, LAPO and several non-profit microfinance institutions still in operation in Nigeria do NEITHER accept deposit from the public NOR make loans to non-savers.
• After a number of rating exercises on local microfinance NGOs, rating agencies which Hugh Sinclair has copiously quoted on this, now know better.
• It is preposterous for anyone to believe that LAPO with all its huge size and long history would have been allowed by regulatory authorities to carry out illegal savings mobilization!
High Interest rate
• Hugh Sinclair continued to quote various rates from various sources as it suited him. However, he has never made the following outlandish claim before as he makes this blog: “But instead increased it And(sic) not by a few basis points as we are accustomed to in Europe, but BY whopping 144% “(emphasis ours). When we read this we did not know whether to laugh or to weep. Those who know LAPO for over 20 years will pity this peddler of falsehood. How can a microfinance institution increase its interest rate “by whopping 144%”.
The true position is as follows:
• In her over 20 years of operations, LAPO has never increased its interest rates, not to think of “by a whopping 144%”!
• While we were at LAPO and to our knowledge now, the only direction LAPO’s interest rates have gone is downward. Indeed in 2010, we are aware that rates and fees were massively reviewed downward and a ‘road map’ for further reduction was developed in 2011. We are aware that in its September 13, 2012 meeting, the Board of the Microfinance Bank approved further reduction of interest rate
It is important to add that:
• The accumulated surplus generated from microfinance operations has never been appropriated by anyone. This was eventually used to capitalize LAPO Microfinance Bank.
• LAPO offers a range of social empowerment services to its clients. These services include scholarship awards for secondary/High school education , legal aid, insurance cover for complications at childbirth , fire in the market place and life.

• As at today, LAPO Microfinance Bank offers one of the lowest pricing in the local microfinance market in terms of total pricing.

LAPO as a jester? and “the CEO of LAPO just pocketed 12% of the equity of the company having enslaved the best part of a million people in debt”
This is the most UNFORTUNATE and SAD comment of the blog, and indeed of all his comments and tirades against LAPO and our former boss over the years. He did not even get to this sad point in his book! We will request him to withdraw this statement for the following reason:
• While the jester part is his opinion, the pocketing of 12% of the equity of the company is completely FALSE.
• The CEO did NOT pocket any portion of the profit accumulated by the company. To our knowledge and this is available in the audited accounts by Deloitte the CEO’s stake in LAPO which he paid for with his money is approximately 2% as at December 31, 2011.
• From what we know of our former boss, he cannot even think pocketing another portion of the accumulated profit of the company. This is a man who refused a raise in his monthly salary and benefits between 1996 and 1999 s imply because in his words: “I want LAPO to attain sustainability”; a man who vehemently and successfully argued against ‘sweat equity’ when it was suggested to him.
• We are sure that those who know LAPO’s CEO well enough will be alarmed by this false allegation. This is unfair to a person who has spent his life and made enormous sacrifice, which we have all witnessed, to build LAPO into a foremost social and economic empowerment institution in Nigeria.
• We hope Hugh Sinclair will be humble enough to tender an apology to him once he gets his figure right!

Risk premium
Hugh Sinclair makes a huge issues out of the Risk Premium (RP) indicating that “LAPO was caught sneaking in yet another fee on the poor “ and “as if these interest rates weren’t high enough ” He gives the impression that this was in addition to the rates that was derived as the calculation of the microfinance bank’s interest rates.
The position is that:
• Risk Premium was not sneak Risk Premium. It was introduced in 1994, fifteen (15) years before Hugh Sinclair began his campaign against LAPO.
• RP, as we remembered, was introduced to address the challenges arising from incidences which constrained clients’ capacity to be in business and repayment. Common incidences were fire outbreak in the market (which is covered by a insurance policy arranged from a major insurance company now), floods, illnesses and robbery attacks amongst others. All clients who suffered from these had their loans completely written off. The decision to introduce this in 1994 was discussed and taken at Branch Councils (A Branch Council in LAPO is a body of all leaders of a credit groups supervised by a Branch Office. The Council has an elected leader and meets quarterly to discuss issues that affect operations and clients). This initiative has been highly recognized and commended by the microfinance community in Nigeria and has been adopted by most microfinance institutions in the country.
Withdrawal of Rating
• We are aware that like all rating agencies, guarantees the timeliness of a rating for a limited time period only. MicroRate’s performance ratings of MFIs remain valid for up to twelve months from the date of the financial statements evaluated. The said rating by Microrate was conducted during 2008 using December 2007 data. Naturally, LAPO rating *expired* under the regular policy that Microrate employs for all of its ratings. Hugh Sinclair has consistently flagged this as a withdrawal by the rating agency.
• We are also aware of written confirmation by MicroRate which is available and accessible, stating that the rating was not withdrawn but expired naturally after two years.
• He has also ignored the fact that MicroRate later admitted on August 26, five days after the said ‘withdrawal’ that
“we have only reminded our readers that the LAPO rating expired under the regular policy that we employ for all of our ratings” and added that “ We have not withdrawn (emphasis by MicroRate)the rating” .
• Hugh reveals his motive when he lied in his book where he declares that:
“LAPO warned MicroRate that unless the press release was immediately withdrawn it would make sure MicroRate never worked in Nigeria again”.

We have confirmed that there was NO such threat, except it existed only in Hugh Sinclair’s fertile imagination
• It may interest Hugh Sinclair to know that the same MicroRate, that LAPO had supposedly been “warned ” to steer clear of the Nigerian market has just conducted a rating exercise of LAPO Microfinance Bank, the final report of which is expected in the next few weeks!

LAPO and Subsidiaries
Much has been made out of the subsidiaries in LAPO, this we consider to have arisen out of limited understanding of the social perspective of early microfinance practice, and in some cases, mischief. Subsidiaries in LAPO arose from the history and scope of activities at inception.
• LAPO started as a poverty alleviation organization. It conceptualized (LAPO still does) poverty as i. material deprivation, ii. Poor health and iii. Social exclusion.

• LAPO therefore developed program mix of which micro-credit or microfinance was just one item. As the microfinance operations grew, it was considered efficient to set up sister institutions to implement health and social empowerment activities. Most microfinance institutions which began operations before 1990 (when commercialization of microfinance began) adopted this credit-plus approach and have subsidiaries. It is interesting to note that many successful microfinance institutions or banks which adopted minimalist (only credit ) approach are setting up subsidiaries to implement social empowerment programs

• We understand that it may be difficult for those who came into microfinance at commercialization phase to fully understand and appreciate the existence of subsidiaries and level of resources for the implementation of programs which have been proved to be very helpful. Even rating agencies which have highly acknowledged the double bottom-line approach of LAPO still need for education on this.

For instance LAPO subsidiaries implement :

i. innovative HIV/AIDS prevention and support program in rural communities;
ii. malaria awareness and treatment campaigns,
iii. training and equipping Traditional Birth Attendants in rural communities;
iv. legal aid for poor women particularly, in cases involving deprivation of rights to the property of deceased husbands; provide scholars to children of clients;
v. Collaboration with insurance company to provide micro-insurance against risk to life, fire in market place, and complications at child delivery and
vi. Production and air a gender sensitization TV program called Bridging the Gap.

• It is impossible for one institution to provide the above social empowerment services as single entity.

• LAPO in 1996 began clear separation of these entities from microfinance operations in terms of management and staff; financial reporting and performance assessment.

Audit
In his earlier writings and book, even in this blog, Hugh Sinclair has refused to provide the context of audit of LAPO though some other persons have made clarifications.
• To our knowledge, the period 2009 was that of institutional transition for LAPO preparatory to transformation into a regulated entity. It was a couple of challenges and actions during this period that Hugh Sinclair has most capitalized on in his writings and book. For instance, in his book he recklessly declared that the “MIS was in a mess”. Show us a microfinance institution that has operated manually for over 15 years one that would not have experienced challenges transiting to automation of its data processing?
• A transitional Board which was to give (and indeed gave) way to a Board of the regulated entity had existed in 2010. There was a relationship between a new member and the existing auditor
• In 2010, a new board for the regulated Microfinance was in place
• In 2010, the firm of Deloitte was engaged as the external auditors. The firm was mandated to review 2009 key transactions under an Agreed Upon Procedures (AUP). The reports were shared with partners of LAPO. It is important to note that there were no significant infractions in the AUP reports by Deloitte.
Lastly, We wish to advise Hugh Sinclair on the use of words and comments. Whatever cause he is pursuing, if it is to promote responsible financing, then his efforts could be constrained by reckless and intemperate comments and claims which border on slander and libel.